An interesting although unsubstantiated rumor coming from The Daily, “an iPad app of News entertainment, culture, opinion, gossip, sports, and tech, delivered every day”, that Microsoft, “sick of watching content partners like Netflix and Hulu eat its proverbial lunch”, is preparing to roll out its own Zune branded video subscription service later this year:

Rumblings around the Microsoft campus there suggest a new way to watch videos on the Xbox 360 is coming, with Microsoft as the direct source of the content.

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What isn’t known is how Microsoft is going to handle subscriptions. The company currently offers an all-you-can-hear music subscription service with the Zune Pass; this new video offering could be similar, or it could be folded into the existing Zune Pass itself. Or it could be a premium feature for those with Xbox Live Gold memberships, likely as an add-on to recurring subscriptions already in place.

Either way, with the Zune licensing, Microsoft will have access to a larger number of videos than it does with Xbox Live. And the new system would give viewers an instant way to watch videos instead of the downloading method used now. More importantly, Zune Video could be and most likely will be shared among multiple Microsoft devices, like Media PCs and Windows Phone 7 series handsets.

Microsoft doesn’t want to put Netflix out of business, per se, but it’s clear that it’s tired of seeing potential revenue from its own hardware going to someone else.

Of course we have to put this in the wild rumor department at this point, although a video service to complement the Zune Pass audio subscription service sure would be nice!